The large banks' profit binge continues, with RBC, TD, and CIBC profits increasing by more than 100 percent.

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Kirti Pathak
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Last quarter, three of Canada's largest banks saw their profits more than double or more than triple, indicating that the worst of the pandemic's economic toll may be behind them, as the country's major lenders are back to raking in the cash.

The Royal Bank of Canada, Canada's largest bank, made a $4 billion profit in the three months leading up to the end of April. This compares to $1.5 billion in earnings at the same point last year, when the COVID-19 pandemic was just getting started.

With a profit of $3.7 billion for the quarter, up 144% from the previous year, the second-largest bank, TD Bank, was just marginally behind. CIBC followed suit, recording a quarterly profit of $1.6 billion, more than four times what it earned at the same period last year.

On Wednesday, Bank of Montreal was the first major bank to disclose quarterly earnings, with profits nearly doubling to a little over $1.3 billion. On Monday, the final of the big banks, Scotiabank, will report, and experts expect a similar huge hike.

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The banks act as a canary in the economic coal mine in Canada because if the customers and businesses to whom they lend money are having trouble paying their debts, the banks' accounts will reflect this. However, this week's earnings surge implies that, at the very least, consumers and businesses are not in dire straits.

Part of the enormous increase in earnings can be ascribed to banks being able to withdraw funds set aside to cover debts that they were concerned might default. The banks set aside billions of dollars in cash on their balance sheets as loan-loss provisions in case they had to write off loans that they believed would default due to the pandemic.

But, for the most part, this has not been the case. According to official data, just over 2,500 Canadian businesses went bankrupt in the year leading up to March 31, 2021. This is down 30% from just over 3,500 people who did so the year before when there was no epidemic.

Consumer insolvencies have also decreased by 37% during the outbreak, compared to before the pandemic. This means that, for the most part, Canadians are staying on top of their debt, allowing banks to shift some of the cash they had set aside from the liability side of the ledger to the asset side.

Last year, Royal Bank had $2.1 billion in loan loss provisions. They've slashed their budget to only $260 million. TD, on the other hand, had $3.2 billion in provisions a year ago. This means that, for the most part, Canadians are staying on top of their debt, allowing banks to shift some of the cash they had set aside from the liability side of the ledger to the asset side.

Royal Bank had loan-loss provisions of $2.1 billion this time last year. They're now down to just $260 million. TD, meanwhile, had $3.2 billion worth of provisions a year ago.

 

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